Article | Journal of Accounting & Economics | December 2010

Implications for GAAP from an Analysis of Positive Research in Accounting

by S.P. Kothari, Karthik Ramanna and Douglas J. Skinner


Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP's principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets but caution against expanding fair values to financial reporting more generally. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.

Keywords: Fair Value Accounting; Standards; International Accounting; Financial Markets; Financial Reporting;


Kothari, S.P., Karthik Ramanna, and Douglas J. Skinner. "Implications for GAAP from an Analysis of Positive Research in Accounting." Journal of Accounting & Economics 50, nos. 2-3 (December 2010): 246–286. (Presented at the 2009 Journal of Accounting & Economics Conference.)